The Coming Derivatives Crisis That Could Destroy The Entire Global Financial System

Most people have no idea that Wall Street has become a gigantic financial casino. The big Wall Street banks are making tens of billions of dollars a year in the derivatives market, and nobody in the financial community wants the party to end. The word "derivatives" sounds complicated and technical, but understanding them is really not that hard. A derivative is essentially a fancy way of saying that a bet has been made. Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before. Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion. Keep in mind that the GDP of the entire world is only somewhere in the neighborhood of $65 trillion. The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them "financial weapons of mass destruction". For now, the financial powers that be are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down. When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.

The European Debt Crisis: The Creditors are America's "Too Big to Fail" Wall Street Bankstersby Bob ChapmanGlobal Research, International Forecaster October 26, 2011

We address this European issue, because soon it will debut in the US. The comprehensive policy response, which we have been told existed, really doesn’t exist. We found that out last Friday. All the lies of the past two weeks by various European governments and bureaucrats, as well as Mr. Sarkozy and Mrs. Merkel, were just more delaying tactics to attempt to find a solution to Europe’s financial dilemma. As part of this display of smoke and mirrors, these hopeful signs, generated large gains in US and European stock markets, of course, with the assistance of the “President’s Working Group on Financial Markets.” At the same time as usual gold, silver and commodities markets were attacked viciously. This is how markets and economies are manipulated when in control of our corporatist fascist government.

Following the lead of the Federal Reserve two weeks ago both the Bank of England and the European Central Bank added more wood to the fire by expanding their issuance of money and credit. As we have previously pointed out the system cannot function without perpetual quantitative easing or stimulus. That is because no attempt has been made to solve the problems of the economy and unemployment. In the US, UK and Europe only the financial sectors and governments have been recapitalized. That is ongoing. This is the solution offered by the Fed and all others should follow such dictates. Policymakers may be energized with three conferences on tap, but that means little. Germany is the key, the German people, and they are not budging. They have had it. Being forced for 66 years to do as they have been told. That era of allied hegemony is over. While they are at it they should remove foreign troops from their soil.

The “Shock Doctrine” is clearly at work again. Look at Italy’s new leader’s credentials, Mario Monti [link to en.wikipedia.org]

Monti is the first chairman of Bruegel, a European think tank founded in 2005, and he is European Chairman of the Trilateral Commission, a think tank founded in 1973 by David Rockefeller.[4] He is also a leading member of the Bilderberg Group.[5] Monti is an international adviser to Goldman Sachs and The Coca-Cola Company.[6]

Both Greece and Italy will be ruled by so-called ‘technocratic’ governments. Even though both Greek prime minister George Papandreou and Italian prime minister Silvio Berlusconi were elected comfortably in parliamentary polls and were never defeated in any vote of confidence in parliament, they have been ousted – to be replaced by unelected ex-central bankers and former executives of hedge funds and investment banks. From now on, financial markets will rule directly over the lives of the Italian and Greek people.

Democracy should be put above markets, said Papandreou. Berlusconi said that the appointment of a government of technocrats would be “an undemocratic coup” that ignored the 2008 election result. But it is still happening. In Greece, Lucas Papademos will become prime minister. He was head of the Greek central bank when Greece joined the euro and boasts of his leading role in achieving that. Now he takes over in order to keep Greece in the euro, a decision that now President Nicolas Sarkozi says was “a mistake.” Papademos was in charge when Greek officials lied about their fiscal position to the EU authorities and he presided over the failure of the Greek government to collect taxes from rich Greeks (like himself). But he is now the financial markets’ own man. Greece is to be run by the very man most responsible for getting them into this mess. It's like Alan Greenspan taking over as President of the United States after Wall Street demanded President Obama step down for failing to cut entitlement spending enough to balance the budget!

The sovereign debt crisis tightening its grip on Europe has claimed the scalps of two prime ministers – those of Greece and Italy. Looking at the men poised to replace them, one cannot but ask – is this another turn of the screw for ordinary people?

Greece and Italy hold huge swathes of public debt they are unable to service unless they get massive European Central Bank and International Monetary Fund support, as a prelude to refinancing by international banks.

Greece has replaced its prime minister after he dared to say he would put a further round of harsh austerity measures to a referendum vote. The country’s new PM is Lucas Papademos, former vice president of the ECB and of Greece’s own Central Bank, and a member of David Rockefeller’s (JPMorgan Chase/Exxon) powerful Trilateral Commission.

As for Italy, instead of Silvio Berlusconi they got the former European Commissioner Mario Monti, who happens to be European chairman of the Trilateral Commission.

Whenever we hear of “sovereign debt crises” – whether in Mexico 1997, Brazil 1999, in my native Argentina in 2001/2, or today in Greece, Italy, Spain, Portugal, Ireland and (soon to come) the UK, France, or the US – what it really means is that governments cannot collect enough tax revenues from their people to pay interest and capital on debt that is mostly in the hands of private banking institutions.

Cutting through the Orwellian Newspeak* of the media, this means that the people of Greece, Italy, and Argentina must pay for the mistakes of bankers and corrupt governments, suffering higher taxes, unemployment, lower wages and pensions, and a deterioration in public healthcare, education, and infrastructure.

So, whenever there is a public debt crisis, “We the People” must pay for it.

The problem of bank loans gone bad, especially those with government-guarantees such as U.S. student loans and Fannie Mae mortgages, has thrown into question just what should be a “fair value” for these debt obligations. Should “fair value” reflect what debtors can pay – that is, pay without going bankrupt? Or is it fair for banks and even vulture funds to get whatever they can squeeze out of debtors?

The answer will depend largely on the degree to which governments back the claims of creditors. The legal definition of how much can be squeezed out is becoming a political issue pulling national governments, the IMF, ECB and other financial agencies into a conflict pitting banks, vulture funds and debt-strapped populations against each other.

This polarizing issue has now broken out especially in Iceland. The country is now suffering a second round of economic and financial distress stemming from the collapse of its banking system in October 2008. That crisis caused a huge loss of savings not only for domestic citizens but also for international creditors such as Deutsche Bank, Barclay’s and their institutional clients.

Stuck with bad loans and bonds from bankrupt issuers, foreign investors in the old banks sold their bonds and other claims for pennies on the dollar to buyers whose web sites described themselves as “specializing in distressed assets,” commonly known as vulture funds. (Persistent rumors suggest that some of these are working with the previous owners of the failed Icelandic banks, operating out of offshore banking and tax havens and currently under investigation by a Special Prosecutor.)

At the time when those bonds were sold in the market, Iceland’s government owned 100% of all three new banks. Representing the national interest, it intended for the banks to pass on to the debtors the write-downs at which they discounted the assets they bought from the old banks. This was supposed to be what “fair value” meant: the low market valuation at that time. It was supposed to take account of the reasonable ability of households and businesses to pay back loans that had become unpayable as the currency had collapsed and import prices had risen accordingly.

New Phase of the Global Debt Crisis: Widespread discounting of Western Public Debt - 30,000 billion US dollars in ghost assets will disappear by early 2013by GEABNovember 17, 2011Global Research, Global Europe Economic Anticipation Bulletin (GEAB) No 59

As we come to the end of the second half of 2011, it is evident that 15,000 billion in ghost assets have gone up in smoke since last July, just as was anticipated by LEAP/E2020 (GEAB N°56 ). And, according to our team, this process figures to continue at the same rate throughout the year to come. Indeed we estimate that, with the introduction of a 50% discount on Greek government debt, the global systemic crisis has entered a new phase: that of the generalized discount on Western public debt and its corollary, the fragmentation of the global financial markets. Our team believes that 2012 will bring an average discount of 30% of total Western public debt (1), plus an equivalent amount in loss of assets from the balance sheets of worldwide financial institutions. Specifically, LEAP/E2020 anticipates the loss of 30,000 billion ghost assets by early 2013 (2), with an acceleration in 2012 of the partitioning process of the global financial market (3) into three increasingly disconnected currency areas: Dollar, Euro, and Yuan. These two phenomena feed into each other. They will also be the cause of a sharp decline of 30% on the part of US currency in 2012 (4), as we announced last April (GEAB N°54 ), which will occur amidst a sharp reduction in demand for the US dollar and the worsening of the US governmental debt crisis. The end of 2011 will therefore see, as anticipated, the trigger of the European debt crisis detonating a US bomb.

In this GEAB N°59 we will analyze in detail this new phase of the crisis as well as the deepening US debt crisis. Moreover, we will begin to present, as indicated in previous GEABs, our forecasts about the future of the United States between 2012 and 2016 (5) starting with a fundamental aspect of Euro-US relations (and more generally the global system that has been in place since 1945), namely the strategic and military relations between the US and Europe. We have estimated that by 2017 the last US soldier will have left European continental soil. Finally, LEAP/E2020 will present its recommendations, dealing this month with currency, gold, capital-based pensions, the financial sector, and commodities.

In this public announcement we have chosen to present the various elements that will determine the next escalation of the US debt crisis, while taking stock of the October EU summit and the Cannes G20 summit.

The eviction of demonstrators last week is an ominous metaphor for ruling elites, whose own days are surely numbered, ponders Eric Walberg

As protesters fed up with the increasing injustices of the global economic system get chucked out of their latter-day Hoovervilles, Euro-American elites might consider when their turn will come. For the financial crisis facing Greece, Ireland, Italy, Spain and who-knows-where next is really about who pays for the past three decades of largesse.

The popular perception is that the ordinary people have been living "beyond their means", a false and invidious conventional wisdom which masks the real nature of the crisis. For it is the elites across Europe and the Americas who have benefited most from the European Union, built on Reaganite neoliberalism, which in turn was fashioned to meet the needs of business. The neoliberal policies of all Western governments, "left" or "right" during the past three decades are the direct cause of the current highly skewed income distribution ­ by some accounts, worse than in any previous era of human history.

The supposed generous patriarch of this big happy family is Germany, with its hard workers and tidy streets. But while the Aesopian Greek hares are told they must tighten their belts and make do with less health and education, the fact that the Greek arms imports continue to grow - importing German weapons and "defence" systems (against what threat?) - is not mentioned. And it is not only weapons, but consumer goods from Germany that have displaced Greek products in the anonymous Euro-market, as Greece increasingly becomes northern Europeans' decadent playground, albeit with more than its fair share of un- and under-employed.

Let me point out, however, that if American middle-class investors pull out of the futures market, international finance will take ownership off all food and strategic commodities for a song. We are not taking merely about stopping the making of bets in a game, we are talking about ownership of next years world food supply. Everyone is thinking about their portfolio and the risk -- no one is thinking of ownership and control of the real capital which allows continued production -- namely food and fuel and raw materials.

Goldman Sachs has infiltrated senior positions of power across Europe, says Le Monde's London correspondent, Marc Roche. The Prime Ministers of Greece and Italy as well as the new head of the European Central Bank all have close ties to the bank.

The people that will be utterly destroyed, and suicidal, are the average multi-millionaires.

Quoting: Anonymous Coward 1473235

Please explain that comment.If you are broke and struggling to pay now wont it just get that much harder for the low income or broke.Wont the millionaires still be able to pay for whatever without a problem

Members of a bipartisan congressional committee admitted Sunday that they had failed to reach any agreement on cutting $1.2 trillion over ten years from projected US government deficits. More than half the panel’s members appeared on network television interview programs Sunday to bemoan the breakdown of the effort, one day before the actual Monday deadline.

Under the procedure established in August as part of the agreement that ended the crisis over raising the federal debt ceiling, the 12-member committee, six senators and six congressmen, divided equally between the two big business parties, has until Wednesday, November 23 to deliver a deficit reduction proposal to Congress. Because the Congressional Budget Office must “score” the proposal to confirm that it meets the $1.2 trillion target, a process that requires 48 hours, the effective deadline is Monday.

If the panel had met the deadline, both the House and Senate would have been required to give an up-or-down vote, without any filibusters, amendments or procedural delays, by December 23. Failing to meet the deadline forecloses the use of these expedited procedures.

This sets into motion the second stage of the deficit-reduction process agreed on last August—an automatic “trigger” to cut spending. An across-the-board cut in federal spending of the required amount, $1.2 trillion over ten years, is to take effect in January 2013, divided equally between military and domestic social spending. According to an estimate from the Congressional Budget Office, Medicare reimbursements to providers would fall by 2 percent, other domestic programs by 7.8 percent, and military spending by about 10 percent.

Senators and congressmen of both parties immediately declared their opposition to the military cuts and said they would propose measures to shift the burden of the automatic cuts to other areas of the budget, particularly entitlement programs like Medicare and Social Security, which are largely exempted under the “trigger” procedure.